Corruption Scandal: India canceled its 2010 contract with AgustaWestland for 12 VVIP helicopters but will not blacklist the company. (AgustaWestland)

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NEW DELHI — The Indian Defence Ministry will not blacklist AgustaWestland or parent company Finmeccanica, restricting its action only to canceling the €556 million (US $766 million) contract for 12 VVIP helicopters to India, MoD sources said.

The decision not to blacklist AgustaWestland allows it to remain in two Indian competitions, added one of the sources.

AgustaWestland is competing to supply 56 naval utility helicopters to the Indian Navy and 14 twin-engine helicopters to the Indian Coast Guard.

In the Navy competition, AgustaWestland is competing with Eurocopter. The Indian Navy is planning to procure twin-engine light helicopters to replace its aging Cheetah and Chetak machines.

In the Indian Coast Guard tender, two other companies, including Sikorsky and Eurocopter, have also submitted their bids.

On Jan. 1, the MoD canceled its 2010 contract with AgustaWestland for the 12 VVIP helicopters, citing a breach of the Integrity Pact signed by the company.

MoD sources said the decision to cancel the contract but not blacklist the company was taken after Indian Defence Minister A.K. Antony met Prime Minister Manmohan Singh on Jan. 1. No details of the meeting have been divulged.

Nitin Mehta, a New Delhi-based defense analyst, said the MoD is trying “to send a message ahead of the general elections for early 2014 that the ruling government is taking action against corruption.”

India’s previous blacklisting of companies have adversely affected several weapons projects, including the artillery purchase program and a deal to address shortages in ammunition. The blacklisted companies include Denel of South Africa, Singapore Technologies, Israel Military Industries and Rheinmetall Air Defence.

AgustaWestland confirmed it received notification from India’s Ministry of Defence concerning the appointment of an arbitrator, as requested by AgustaWestland on Nov. 25 and Dec. 4, as well as a termination notice of the agreement to supply the 12 helicopters.

AgustaWestland claims that neither the termination notice nor the show-cause notice, from which this termination notice stems, offers adequate basis to take any action against the company. Since the MoD says the tender process was appropriately followed, the termination notice will have to be discussed within the framework of an arbitration process.

AgustaWestland remains committed to working with India to resolve the issues, company officials said. AgustaWestland will continue to support the three helicopters already delivered to, and currently operated by, the Indian Air Force.

Finmeccanica said it has already introduced stringent ethical procedures common to all group companies to harmonize their rules based on the standards set by the parent company.

India’s Central Bureau of Investigation (CBI) has filed no charge sheets against any individual or company in connection with the canceled contract.

AgustaWestland is accused of using corrupt practices to win the helicopter contract. The Indian government halted the contract last year after Giuseppe Orsi, then-CEO of Finmeccanica, was arrested in Italy and charged with paying bribes to secure the Indian deal while he was CEO of AgustaWestland. New Delhi stopped payments on the contract and referred the matter to the CBI.

Meanwhile, Indian defense planners have said that blacklisting Finmeccanica or even AgustaWestland could impede several defense projects.

Wass, a subsidiary of Finmeccanica, is upgrading India’s A244 lightweight torpedoes and has offered its Black Shark torpedoes.

The torpedoes marked A244-S are being upgraded to extend the life of the torpedoes by another 20 years. Wass is fitting the torpedoes with a new fire control system and is enhancing their range, speed, target acquisition and counter measures.

Finmeccanica has also offered to participate in the joint development of ongoing torpedo programs under the Defence Research and Development Organisation.

Selex of Italy, another subsidiary of Finmeccanica, has been awarded a contract to supply an advanced 3D Band Air Surveillance Radar for the Navy’s home-grown aircraft carrier being built at Cochin Shipyard. The blacklisting of Finmeccanica would adversely affect India’s aircraft carrier program, which is already delayed by over four years.